Unfair Tariffs Pushing Green Sector Over the Edge

EghtesadOnline: Despite the fact that in the past few years almost 50% of foreign direct investment in Iran’s power sector was in green energy, some 200 companies active in the renewable sector are facing insolvency, board member of Iran Renewable Energy Association (IrREA) said Tuesday.

News ID: ۷۴۸۳۶۵

04 September 2019

“Volatility and instability in the currency market and the Energy Ministry's reluctance to allow fair and reasonable tariffs for electricity produced by the private companies are among root causes of the problem,” ISNA quoted Mohammad Javad Mousavi as saying.

It was not until 2015 when the ministry (for the first time in its history) set reasonable tariffs to purchase clean energy produced by private firms (6 to 9 cents per kilowatt). That move worked well and was a major incentive to attract local and foreign investment in renewable energy ventures, he noted.

However, rampant inflation at times leaning on hyperinflation, and the new US economic sanctions imposed in 2018 tripled import costs of most equipment including photovoltaic (PV) inverters, panels and cables, according to Financial Tribune.

"Rather strangely the ministry has not increased the tariffs and insists that producers sell what they produce for 20 cents for at the most 9 cents per kWh," he complained. Electricity in Iran is sold at highly subsidized rates.

The imprudent policy has visibly undermined the industry that had been growing gradually, and many companies are unable and unwilling to continue work in the [loss-making] sector.

Creating jobs in remote rural areas, curbing migration to urban areas, saving water, reducing power waste plus cutting carbon emissions are among the more significant advantages of green energy “none of which can be further possible unless policy and decision makers change course.”

Referring to measures taken by IrREA to salvage the infant industry, he said several meetings have been held with the Renewable Energy and Energy Efficiency Organization -- a subsidiary of the Energy Ministry also known as Satba -- and officials have promised to increase tariffs by 30%. “But nothing has happened.”

Mousavi is of the opinion that the private sector is capable of indigenizing now-how to manufacture inverters, solar panels and cables on the condition that it gets support; otherwise, there are more lucrative businesses for the private sector.

"Creating a stable market in which between 500-1,000 MW can be produced and sold is a strong incentive for private firms not to abandon their commitment to develop green energy," he was quoted as saying.

Investment so far in renewable has surpassed $1.5 billion, the news agency said. An estimated 1,500 small and 50 industrial renewable power plants have been built in the past two years. Renewables account for about 1 gigawatt of total 82 gigawatts installed power capacity.

Impediment to Progress

International news outlets, namely Bloomberg, recently reported that Iran is about to burn a lot more eco-unfriendly mazut as a result of US sanctions, impeding the nation’s progress in switching to cleaner-burning natural gas.

“Power plants and other industrial facilities will burn more than 200,000 barrels a day of highly polluting mazut next year, double the amount Iran used in 2018,”  is a forecast by Iain Mowat of consultant Wood Mackenzie Ltd.

Sanctions prevent Iran from importing equipment needed for refining heavy oil products into less-polluting products like gasoline and, even if it finds other ways building refineries takes time.

The government in Tehran says it wants to build new refineries to process mazut into cleaner products. Although refineries typically take four years to complete, Tehran is hoping for faster results, said Sakineh Almasi, a spokeswoman for the Majlis Energy Commission, according to the parliament’s ICANA news service. Almasi did not say how the government plans to work around the hostile economic restrictions imposed by Donald Trump and his ilk.

Meanwhile, Iran’s oil and fuel inventories are getting bigger.

According to state-owned Thermal Power Plants Holding Company, use of mazut to produce electricity peaked in 2013 and has since fallen sharply as power plants switched to natural gas. In the fiscal year ending in March 2018, the plants consumed a quarter of the mazut they burned four years ago.